Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Future Vietnamese Digital Economy

5,278 views

Published on

With youth, innovation and investment, the people of Vietnam have good reason to be optimistic about the future of the economy, and development of the digital economy over the next 20 years. The paths that may be taken for the development and growth of Vietnam through digital transformation are not risk-free, however, and will need to be navigated carefully.
Like many countries around the world at this point in history, the main challenge in the development of the next wave of the digital economy (implementing technologies such as artificial intelligence, advanced automation, digital-biological-physical networks and advanced GPS tracking, cloud-based platforms and blockchain systems) will be to lift labour productivity while maintaining high employment levels, social inclusion and equality; to transition the labour market and government systems along with the systems of wealth generation.
This is the first report in a larger study, Vietnam’s Future Digital Economy, an innovative joint project between Australia’s Data61|CSIRO and Vietnam’s Ministry for Science and Technology. It examines the state of Vietnam’s economy and digital economy at the beginning of 2018, and the trends that will affect its development over the next 20 years.
The broader study will explore how different rates of digital transformation could create a number of plausible futures for Vietnam’s digital economy. The project will also look into the possible impacts of digital technologies on two of Vietnam’s more significant industrial sectors: manufacturing and agriculture.

Published in: Technology
  • Be the first to comment

Future Vietnamese Digital Economy

  1. 1. VIETNAM TODAY March 2018 First report of the Vietnam’s Future Digital Economy Project Current profile and trends impacting Vietnam’s economy and digital economy
  2. 2. CITATION Cameron A, Pham T, Atherton J (2018) Vietnam Today – first report of the Vietnam’s Future Digital Economy Project. CSIRO, Brisbane. COPYRIGHT © Commonwealth Scientific and Industrial Research Organisation 2018. To the extent permitted by law, all rights are reserved and no part of this publication covered by copyright may be reproduced or copied in any form or by any means except with the written permission of CSIRO. IMPORTANT DISCLAIMER CSIRO advises that the information contained in this publication comprises general statements based on scientific research. The reader is advised and needs to be aware that such information may be incomplete or unable to be used in any specific situation. No reliance or actions must therefore be made on that information without seeking prior expert professional, scientific and technical advice. To the extent permitted by law, CSIRO (including its employees and consultants) excludes all liability to any person for any consequences, including but not limited to all losses, damages, costs, expenses and any other compensation, arising directly or indirectly from using this publication (in part or in whole) and any information or material contained in it. CSIRO is committed to providing web accessible content wherever possible. If you are having difficulties with accessing this document please contact csiroenquiries@csiro.au. CONTRIBUTIONS Comments and input were provided by Dr Bui The Duy, Dr Nguyen Duc Hoang, Dr Nguyen Truong Phi, Dr Nguyen Quang Lich, Mr Hoang Xuan Thanh from the Ministry of Science and Technology, Vietnam, and Mr Nguyen The Trung from DTT Technology Group. This report has been supported by the Australian Department of Foreign Affairs and Trade through the Aus4Innovation initiative, and by Vietnam’s Ministry of Science and Technology. Ministry of Science and Technology, Vietnam
  3. 3. CONTENTS Executive summary..........................................................................................................................1 1 Vietnam – country profile and trends ......................................................................................7 1.1 Introduction..............................................................................................................................................................7 1.2 Geography................................................................................................................................................................8 1.3 Demographic profile and trends...........................................................................................................................10 1.4 Economic trends.....................................................................................................................................................12 1.5 Trade and investment ...........................................................................................................................................14 2 Vietnam’s digital economy .....................................................................................................23 2.1 Introduction............................................................................................................................................................23 2.2 What is the digital economy?................................................................................................................................24 2.3 Policies supporting the digital economy.............................................................................................................27 2.4 Supportive telecommunications infrastructure...................................................................................................30 2.5 Digital adoption ....................................................................................................................................................32 2.6 ICT – the booming base of Vietnam’s digital economy......................................................................................33 2.7 Industry 4.0 – the next wave ................................................................................................................................38 3 Challenges and opportunities.................................................................................................41 Appendix 1: Companies operating in the digital economy in Vietnam.......................................47 Appendix 2: Main regulations on Information Technology in Vietnam..................................... 48 References..................................................................................................................................... 50
  4. 4. 1 EXECUTIVE SUMMARY With youth, innovation and investment, the people of Vietnam have good reason to be optimistic about the future of the economy, and development of the digital economy over the next 20 years. The paths that may be taken for the development and growth of Vietnam through digital transformation are not risk-free, however, and will need to be navigated carefully. Like many countries around the world at this point in history, the main challenge in the development of the next wave of the digital economy (implementing technologies such as artificial intelligence, advanced automation, digital-biological-physical networks and advanced GPS tracking, cloud-based platforms and blockchain systems) will be to lift labour productivity while maintaining high employment levels, social inclusion and equality; to transition the labour market and government systems along with the systems of wealth generation. This is the first report in a larger study, Vietnam’s Future Digital Economy, an innovative joint project between Australia’s Data61|CSIRO and Vietnam’s Ministry for Science and Technology. It examines the state of Vietnam’s economy and digital economy at the beginning of 2018, and the trends that will affect its development over the next 20 years. The broader study will explore how different rates of digital transformation could create a number of plausible futures for Vietnam’s digital economy. The project will also look into the possible impacts of digital technologies on two of Vietnam’s more significant industrial sectors: manufacturing and agriculture. Figure 1 Methodology of Vietnam’s Future Digital Economy Project Trends of the macro and digital economy 2018 Methodology Horizon scan, literature review, issue identification. This report Scenario development – Vietnam’s future digital economy 2038 Methodology Workshops, interviews and primary data analysis to create plausible scenarios for Vietnam’s economy in 2038 based on varying rates of digital transformation. Industry case studies: Agriculture and manufacturing Methodology Baseline surveys with industry leaders and businesses will provide data to create an Industry 4.0 readiness Index for components of Vietnam’s Agriculture and Manufacturing sectors (April – June 2018). Conclusions and policy implications Methodology Discussion of final results. Workshops to develop list policy implications and possible future actions. Vietnam’s future digital economy – Final report March 2019VIETNAM TODAY March 2018 First report of the Vietnam’s Future Digital Economy Project Current profile and trends impacting Vietnam’s economy and digital economy
  5. 5. 2 Vietnam Today Vietnam – a development success story At 6.4% per annum GDP growth, Vietnam is one of the fastest-growing economies in Asia and the world. Vietnam achieved the World Bank’s middle-income status in 2010, and is now the sixth-largest economy in the 10-member ASEAN trading bloc. Vietnam is considered one of the world’s development success stories: it was one of the few countries to meet most of the United Nations Millennium Development Goals before 2015.1 Vietnam’s transition from one of the poorest countries in the world to a middle-income country with continually high growth rates resulted from opening up the economy to private enterprise and attracting high levels of foreign direct investment, creating new markets in Vietnam and for Vietnam’s exports, modernising industry, maintaining strong government services and building infrastructure. Since Vietnam adopted a path towards a market-based economy in 1986, incomes and employment rates across the country have risen sharply and over 40 million people have been lifted out of poverty. Vietnam’s changing economy Over the last 30 years, Vietnam’s traditional industries and exports – commodities from oil and mining, agriculture, fisheries and aquaculture – have been supplemented with the relatively newer sectors of manufacturing, construction, tourism and business services. Vietnam’s top three export sectors are now telecommunications equipment; textiles and garments; and computers, electronics and integrated circuits.2 These sectors have grown to provide job opportunities for millions of Vietnamese people, with most of the employment growth in Vietnam’s urban districts.3 As new tertiary industries emerge, Vietnam’s services sector has increased its relative share of gross domestic product.4 The country’s economic transformation is continuing under the Master Plan on Economic Restructuring in 2013-2020.5 This document sets out further divestments in state-owned enterprises (SOEs) and restructuring of banking, foreign direct investment and public investments.
  6. 6. 3 Digital transformation Digital technologies and online connectivity will be a driving force of growth and transformation of the Vietnamese economy over the coming decades. The IT industry alone is expected to contribute 8-10% of the country’s GDP by 2020.6 The Vietnam Government is playing an active role in accelerating the development of the digital economy through policies such as the E-commerce Master Plan7 and the IT Master Plan.6 These have recently been bolstered by whole-of-government directives on transformation towards Industry 4.0.8 The private sector is also investing heavily in digital industries in Vietnam, particularly in manufacturing facilities. In 2010 the world’s largest manufacturing plant of Intel computers and processors opened in Ho Chi Minh City. This was followed in 2015 by over US$11 billion in investment by Samsung in two factories to produce smartphones, digital displays and consumer goods. In late 2017 Seoul Semiconductors announced it would build a facility in North Vietnam. IBM, Siemens, Sony, HP and Toshiba also have a significant presence in offices and facilities in Vietnam. Local company, VNG, which specialises in digital content, entertainment, social networks and e-commerce, was the first Vietnamese company to receive regulatory approval to list on the US-based Nasdaq exchange in 2017, and Australian-based company, Atlassian, grew much of its early value using developers and studios in Vietnam before listing on the Nasdaq for a record US$6.6 billion. The presence of big technology companies has been supplemented in recent years by a thriving tech start-up scene, concentrated in the urban centres of Hanoi, DaNang and Ho Chi Minh City. Young tech entrepreneurs are developing new apps, software, platforms and services for consumers and businesses.9 The Vietnamese population has shown a voracious appetite for digital goods and products. There were more than 132 million mobile devices (including 32 million smartphone users) in Vietnam in 2017, and about 50 million Internet users – over half the population.10 Change can come at a cost to many, however. Digital technologies associated with Industry 4.0, including AI, robotics, automation, drone technologies and big data analytics, may also disrupt existing markets and employment – particularly in agriculture and textiles and goods manufacturing. The composition of Vietnam’s industrial base makes the country particularly vulnerable to job losses due to automation over the next two decades. Understanding the next wave of transformation will be vital for harnessing opportunities and managing risks related to the adoption and use of digital technologies in Vietnam’s industries.
  7. 7. 4 Vietnam Today Challenges and opportunities An examination of Vietnam’s economy reveals that the country faces a number of challenges and opportunities in the immediate and mid-term future. Challenges for Vietnam include: • Lifting labour productivity and moving Vietnam from a middle-income to high-income country: Over the last three decades the economy of Vietnam has expanded rapidly on the increased availability of labour inputs, however increases in labour productivity through the implementation of technology have been limited.5 For Vietnam to escape the ‘middle-income trap’, labour productivity must increase sharply over the next decade, and the economy must switch from being based on labour-inputs to being based on knowledge intensive products and services. • Digital disruption: The International Labour Organization reports that around 70% of jobs in Vietnam are at high risk of being replaced through automation over the next two decades. Vietnam was identified as the country most at risk of digital disruption out of the five ASEAN countries examined - Vietnam, the Philippines, Thailand, Indonesia and Cambodia.11 • Urbanisation and increased internal population migration: 30% of Vietnam’s population live in cities and the United Nations predicts that this will rise to almost 50% by 2040.3 Infrastructure provision is a challenge in fast growing urban areas, as is maintaining air and water quality, waste disposal and sanitation.12 • Climate change and increases in severe weather events: The International Monetary Fund has placed Vietnam among the world’s top five countries most likely to be affected by climate change and extreme weather events.13 • Debt levels: Public and private debt in Vietnam has been growing over the last five years. Total debt – public and private – was 124% of GDP in 2017, exceeding the ASEAN-5 countries (Thailand, Malaysia, Indonesia, The Philippines and Singapore), other middle-income countries and most other countries at comparable stages of development.13 • Maintaining foreign direct investment: Foreign direct investment (FDI) is an important driver of growth in Vietnam, accounting for 71.6% of total exports.14 Vietnam has seen yearly increases in FDI since 2011,15 but analysts warn that more reform is needed to maintain FDI growth in the longer term.16 • Increased inequality: Vietnam has achieved remarkably inclusive growth over the last 30 years.17 However, institutions such as the World Bank have expressed increasing concerns about inequality due to divergent educational and life outcomes between urban and rural populations, and between different ethnic groups.18 • Skills shortages: Vietnam faces considerable skills shortages, especially in regard to digital transformation. To meet demand for IT workers, which is increasing by 47% per year, Vietnam will need an estimated one million more workers in the information and communications technology sector by 2020.19
  8. 8. 5 Opportunities for Vietnam include: • Location and geography: The centre of the global economy is moving from west to east and by 2050 will be located between China and India, which will by then be the world’s largest economies.20 Vietnam is well situated to operate across economies and cultures in the heart of Asia’s fast-growing nations – being a participant in regional trade routes, and benefiting from growing consumer demand from the region’s rising middle classes. • Young and educated population: The median age in Vietnam is only 30.4 years.21 A relatively high proportion of the population (70%) is of working age.22 The country provides universal primary education, resulting in high adult literacy (95% of the population), and even higher youth literacy (98% of the population).23 Youth and education can be considered assets in economic and digital transformation. • A growing and entrepreneurial ICT industry: In 2016 PC Magazine described Vietnam as South-East Asia’s Silicon Valley.24 Emerging sectors and fast-growing sunrise industries in Vietnam already include finance technology (fintech), telecommunications, electronics and computer manufacturing, and ICT services. • Closer to global innovation and venture capital: Along with a shift in the centre of economic gravity to the east, the world’s technological centre is also moving towards the Asia Pacific region. Countries in the region are filing an increasing number of patents – particularly China,25 which is also now second only to the United States in providing venture capital.26 • A growing Asian middle class: The global middle class is expanding rapidly. By around 2020, it is projected to make up over 50% of the world’s population, up from about 30% in 2010.27 Future middle-class expansion is projected to be heavily concentrated in Asia (88% of the next billion new entrants), especially in China and India.27 This is set to benefit Vietnam’s tourism sector, as well as the export of high-value foods and high- technology products. • Booming tourism in South-East Asia: Tourism is one of Vietnam’s growing service sectors – contributing 13.9% to GDP in 2015 but predicted to grow to over 15.2% by 2026.28 It is part of a region-wide trend seeing a growth in international visitor numbers. Vietnam has comparative advantages in the tourism market with natural geographic beauty, diverse cultures, and close proximity to China. • Leapfrogging technology: Vietnam has seen rapid development in mobile communication technologies, with 4G networks now covering over 95% of households.16 Vietnam aims to introduce 5G networks by 2020,16 which have the potential to enable further digital transformation. The most promising use cases for 5G in Vietnam are connected healthcare, smart cites, autonomous vehicles, industrial Internet of Things and fixed wireless.29 Exploiting the opportunities while navigating the challenges for Vietnam will require careful consideration of the plausible futures that may eventuate from differing levels of digital transformation. The next phase of this project will create scenarios for the next 20 years of Vietnam’s development, based on how the next wave of digital technologies are adopted and implemented across Vietnam’s industries, with particular focus on the agricultural and manufacturing sectors.
  9. 9. 6 Vietnam Today
  10. 10. 7 1 VIETNAM – COUNTRY PROFILE AND TRENDS Source: UN World Population Prospects, World Bank Development Indicators 92.7MILLION TOTAL POPULATION 308PEOPLE/KM2 POPULATION DENSITY 75.6YEARS LIFE EXPECTANCY 3%PER ANNUM URBAN POPULATION GROWTH 30.4YEARS MEDIAN AGE 205.3US$ BILLION GDP 6.2%PER ANNUM GDP GROWTH 19.1%OF GDP TAX REVENUE 12.6US$ BILLION FOREIGN DEBT INVESTMENT 2.9US$ BILLION DEVELOPMENT ASSISTANCE 2060US$ PER CAPITA ANNUAL INCOME VIETNAM’S ECONOMY AT A GLANCE 1.1 Introduction Vietnam has come a long way since reunification of the North and South in 1975. For the following decade, Vietnam was one of the poorest countries in the world – reliant on foreign aid, and with an annual per-capita income of less than US$300.17 In 1986 the Doi Moi political reforms gave Vietnam a new direction. The reforms moved the country away from a centralised economy and set it on a path to a liberalised and open market-based economy with high levels of foreign direct investment. The direct impacts of Doi Moi lifted Vietnam’s GDP by 42% by 1998.30 Since the 1990s, Vietnam’s reforms have led to remarkable levels of inclusive growth benefiting all sectors of society.17 In 2011, Vietnam renewed its commitment to market- led development and modernisation through the 2011 – 2020 Socio-Economic Development Strategy. To achieve further investment and market development, the national government will focus on innovation and promoting skills, improving market institutions and maintaining infrastructure investment.
  11. 11. 8 Vietnam Today Vietnam is a member of the 10 country ASEAN (Association of South East Asian Nations) trading bloc. Over the last decade ASEAN’s economic growth rate has outpaced global averages, and it is predicted to become the world’s fourth-largest economy by 2030. Real per-capita incomes in developing economies of the region have doubled on average since the early 1990s, and the number of people living in poverty more than halved between 1990 and 2009. Vietnam covers 33,123 square kilometres, of which 34% (11,530 square kilometres) is under agricultural production, and 45% (14,923 square kilometres) is forested; 15% of land in Vietnam (5,287 square kilometres) is protected forest or park land.32 1.2 Geography Vietnam is located on the eastern side of the Indochina Peninsula and borders the South China Sea. Vietnam is neighboured by China, Laos, Cambodia and Thailand. The Philippines, Malaysia, and Indonesia are other close neighbours across the South China Sea. Vietnam has been part of a broader rise in the economic influence of the South-East Asian region – including the rapid-growth nations of China, Laos, the Philippines and Cambodia, as well as further-developed nations such as Singapore, Thailand and South Korea. Over the last 20 years the region as a whole has witnessed a sharp increase in trade associated with transport, travel, business services and income from the sale of intellectual property.31 Vietnam Taiwan South China Sea Philippines China Indonesia Malaysia Laos Cambodia Thailand Myanmar Brunei Japan South Korea
  12. 12. 9 Vietnam’s coastline stretches 3,260 kilometres, connecting two rich and fertile river deltas – the Mekong in the south and the Red River in the north – and runs beside mountainous regions in the far north (the Annamite Range) and the centre (Central Highlands). Vietnam also lays claim to the Paracel Islands and parts of the Spratly Islands in the South China Sea.32 Most of Vietnam has a humid subtropical climate, but the climate varies considerably between north and south, and between the low-lying coastal areas and the mountainous regions. 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Nation South East Red River Delta Northern Midlands and Mountains Northern Central and Central Coastal Mekong River Delta Ho Chi Minh city Ha Noi Central Highlands Figure 2 Vietnam’s population density (person/km2) by region Source: General Statistics Office, Vietnam34
  13. 13. 10 Vietnam Today 1.3 Demographic profile and trends MOVING TO THE CITIES Vietnam has a population of 92.7 million,33 with the highest densities around the cities of Ho Chi Minh City in the south (8.3 million) and Hanoi in the north (7.33 million).34 Rich river deltas have led to high population densities also in rural areas – particularly in the Mekong River Delta in the south and the Red River Delta in the north. Vietnam’s overall population density is above average at 308 people per square kilometre.21,35 In 2016, 30.3% of the population lived in an urban area, and this is increasing at an average of 3% per year.3,36 Urbanisation in Vietnam is likely to continue as service- based jobs centred in urban areas grow, and commodity- producing jobs found in rural areas decline. The United Nations predicts that close to half the population of Vietnam will live in cities by 2040.3 That will mean more than 20 million more people will need to be accommodated in urban areas within the next 22 years. Local population densities in Vietnam will change as people migrate away from the Mekong Delta (currently experiencing an out-migration rate of 5.7%) and rural northern areas (between 3% and 3.3%).37 The regions seeing the sharpest population growth and net migration are Ho Chi Minh City (1.8% population growth, 6.6% net migration) and the neighbouring South East province (1.8% population growth, 8.4% net migration).34,38 -15 -10 -5 0 5 10 15 20 25 30 2008 2009 2010 2011 2012 2013 2014 2015 2016 Netmigrationrate(%) Red River Delta Ha Noi Northern Midlands and Mountains Northern Central and Central Coastal Central Highlands South East Ho Chi Minh city Mekong River Delta Figure 3 Net migration rate (%) by region Source: General Statistics Office, Vietnam37
  14. 14. 11 MIGRATION: THE TREND IS FLAT The country’s overall net migration rate is nearly zero.37 This indicates an approximately equal levels of imported and exported labour. Around 5.9 million people officially entered and exited Vietnam in 2016, most of working age (20-40 years).39 The top destinations for working migrants were Taiwan/ China, Japan, South Korea, Malaysia, and Saudi Arabia.39 Migration to Taiwan reportedly more than doubled between 2012 and 2016, from 30,533 to 68,244. While men and women were equally represented in overall migration data, females accounted for only 36.4% of Vietnamese labourers abroad.39 Over 74% of the labourers abroad came from the Red River Delta, northern central, or central coastal regions of Vietnam.39 YOUNG BUT AGING RAPIDLY Vietnam has a comparatively young population but the population growth rate is falling and the population is aging rapidly.21,40 UNESCO has identified Vietnam as one of the world’s fastest-aging societies.41 In 2017 the median age in Vietnam was 30.4 years; in 2050 it is projected to be 42.1 years.21 As the proportion of the population over 65 years increases, the proportion of working-age people in the population will decrease, and costs associated with age and health care will grow. By 2050, life expectancy is projected to be 82.1 years, up from 75.6 years in 2018.21 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 15 - 24 25 - 49 50+ Figure 4 Percentage of labour force in different age groups, 2000-2016 Source: General Statistics Office, Vietnam42
  15. 15. 12 Vietnam Today IMPROVING LEVELS OF GENERAL EDUCATION, STILL LOW LEVELS OF SKILLED WORKERS Large investments in primary schooling and education over the last two decades have resulted in Vietnamese people completing a mean of 8.5 years in schooling, and they are highly literate as a result (95% literacy rate).23,43 Over 90% attend lower secondary school, but this drops to 75% in upper secondary.41,44,45 Those at most risk of dropping out at upper secondary are male, rural, and lower-income students.44 Less than half the lowest-quintile income students attend.44 Only 20.6% of the labour force have achieved post- secondary education (8.9% from vocational training, 2.7% from university, and 9% from graduate school or above).46 Outside of the education system, over 50% of urban firms in Vietnam report offering (mostly internal) vocational training.47 Vietnam has seen rapid growth in the number of VET institutions, improved literacy rates, improved teacher- student ratios, and higher student enrolments due to reforms such as the Higher Education Reform Agenda (2005-2020).44,48 1.4 Economic trends ASTONISHING GROWTH The most prominent feature of Vietnam’s economy over the last 30 years has been its astonishing economic growth. China is the only Asian economy that has, on average, grown faster since 1990.49 The average growth rate was 6.86% in the 2000-2015 period.4 In 2017, GDP grew by 6.81% to 5,007 trillion VND (US$234.69 billion).50,51 Total investment in 2017 equalled 33.3% of GDP, a 12.1% increase from 2016.50 This was higher than expected, bolstered by stronger than predicted domestic demand. INCREASING PROSPERITY AND MIDDLE CLASSES Although Vietnam is growing more prosperous, the country lags behind a number of other Asia Pacific countries in terms of wealth per capita. So while Vietnam came close to the world’s highest average annual growth in GDP per capita (5.3%) between 1990 and 2016,55 Vietnam’s annual GDP per capita remains comparatively low at US$6,434.90 PPP (2016).56,57 0 5000 10000 15000 20000 25000 Others Leaders/managers High-level professionals Mid-level professionals Clerks Personal services, protective workers and sales worker Skilled agricultural, forestry and fishery workers Craft and related trade workers Plant and machine operators and assemblers Unskilled occupations Figure 5 Number of employed Vietnamese people by occupation, 2016 Source: General Statistics Office, Vietnam38
  16. 16. 13 Vietnam’s middle classes have been the beneficiaries of this rapid economic growth, becoming a much larger proportion of the population. In 2015, roughly 10% of the Vietnamese population formed part of the global middle class.41 Income inequality is moderately low, at a 35% GINI coefficient.58 Over the last three decades Vietnam has been successful in improving the prosperity of the poorest, dramatically reducing the number of people living in poverty or extreme poverty: the poverty rate decreased from 15.5% in 2006 to just 5.8% in 2016.43 There has also been growth in the rich and ‘super rich’ over the last two decades: in 2017 it was estimated that over 200 individuals in Vietnam were worth $30 million or more.59 Institutions such as the World Bank have raised concerns about increasing inequality, however, due to divergent educational and life outcomes between urban and rural populations, and between different ethnic groups.18 0 50 100 150 200 250 300 350 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Billions GDP Exports Trade 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Singapore Australia Malaysia Thailand China Indonesia Philippines Vietnam Cambodia Figure 6 Vietnam GDP, exports and trade (current US$) Source: World Bank52-54 Figure 7 GDP per capita at PPP current international $, 1993-2016 Source: World Bank56
  17. 17. 14 Vietnam Today CURRENCY DECREASING AGAINST THE US$, AND INFLATION VOLATILE The Vietnamese Dong (VND), the currency of Vietnam, has depreciated by approximately 30% against the US dollar over the last ten years. This period has seen wild fluctuations in inflation (measured by the consumer price index), with two spikes – above 20% in 2008, and just over 18% in 2011. Annual inflation was 3.53% in 2017.50 Inflation has decreased significantly since 2011, however, and the State Bank of Vietnam (SBV) and government officials have stated publically that they will use monetary policy to keep inflation below 4% over the coming years.60,61 PRODUCTIVITY IS RISING, BUT FROM A LOW BASE Vietnam has the highest labour productivity growth of the ASEAN countries.50 Since 2011, labour productivity has grown on average by 4.7% per year, with a 6% rise in 2017 to 93.2 million VND (~US$4159) per worker.50 However, its overall productivity is lower than that of other countries in the region. Estimates suggest that Vietnam will need to increase productivity by 50% in the next 10 years to maintain its rapid growth.63 The Vietnamese labour force is composed of 54.9 million people aged over 15.64 The labour force participation rate is 76.2%.64 Participation rates differ for males and females (81.1% vs. 71.5%), as well as for urban and rural regions (70% vs. 79.5%).64 The overall labour force is mostly rural (67.8%), and 49.9% are aged between 15 and 39.64 The unemployment rate is 2.02%, equalling over 1.1 million people.64 Unemployed youth (aged 15 to 24) make up 55.1% of this figure.64 Unemployment is also higher in rural areas than urban centres. Additionally, over 800,000 people are underemployed.64 Of this population, 84.1% are rural workers and only 17.7% are youths.64 PUBLIC DEBT LEVELS RISING In 2017, total government revenue was estimated to be 1104 trillion VND.50 This was less than government expenditure, estimated to be 1219.5 trillion VND.50 The International Monetary Fund estimate that central government gross debt grew to 63.6% of GDP in 2017, compared with 48.1% in 2010.51 1.5 Trade and investment FDI AND THE PRIVATE SECTOR CONTINUE TO BE DRIVING FORCES OF GROWTH The private sector in Vietnam contributed more than 43% of total GDP in 2016, compared to 28.9% from state-owned enterprises (SOEs) and 18% from foreign direct investment (FDI) firms. However, it engaged more than 85% of total labour force, particularly through agricultural enterprises. The Vietnam government has fully or partially privatised thousands of SOEs since the beginning of the economic liberalisation program in 1986. Since that time, Vietnam has restructured 5950 SOEs, equitising 4460 of them. A further 240, with a capital value of over US$4.7 billion, are scheduled to be privatised by 2020.65 Although FDI is a small component of total GDP, it plays a critical role in attracting capital and expertise to value- added industries in Vietnam. In the last three decades, Vietnam disbursed US$154.5 billion (about 50% of total FDI-registered capital), accounting for approximately 20% of total investment in Vietnam industry.66 The mining and quarrying sectors have traditionally been the main beneficiaries of FDI, but their share has gradually decreased as investment flowing to manufacturing and processing industries has increased. -5 0 5 10 15 20 25 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Figure 8 Vietnam inflation, consumer prices (annual %), 1996-2016 Source: World Bank62
  18. 18. 15 The attraction of FDI to Vietnam improves the country’s overall reputation as a destination for industrial investment and capital: Vietnam is attractive to international investors as an emerging market, and always ranks highly on international investment tables.69 The attraction of FDI is also closely linked to increased exports: 70% of total exported goods were generated from FDI firms in 2017.66 TRADING UP – THE INCREASING VALUE OF VIETNAM’S EXPORTS Vietnam has become the 26th-largest exporter of merchandise in the world.68 In 2017 merchandise exports reached a record US$425 billion in value, an increase of 21% on 2016.2,70 Exports create many jobs within Vietnam – both directly and indirectly – as seen in the increase in labour valued- added contained in Vietnam’s exports after 1995. Vietnam has benefited from increasing wages in China, as many manufacturing jobs can now be done more cost- effectively in Vietnam. This is likely to change as wages in Vietnam also rise and the country loses its comparative advantage based on labour costs alone. 0 10 20 30 40 50 60 70 80 0 20 40 60 80 100 120 140 160 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Percentage $USmillion FDI Firms' Export value % of total export 0 5,000 10,000 15,000 20,000 25,000 1995 1997 2001 2004 2007 2011 Direct labor value added of exports (US$ Mil) Total labor value added of exports (US$ Mil) Figure 10 Increasing labour value added of export products in Vietnam, 1995-2011 Source: World Integrated Trade Solution71 Figure 9 Foreign-invested firms’ export value and proportion of total exports, 1995-2017 Source: World Bank, Vietnam Customs 67,68
  19. 19. 16 Vietnam Today TRADING PARTNERS In 2017 Vietnam had more than 200 trade partners. Its top four export markets were Korea, China, the United States and Japan, together accounting for more than 60% of Vietnam’s total exports.67 TRADE AGREEMENTS Vietnam is an effective member of 11 free trade agreements and is in negotiation for another four.1 Vietnam signed a bilateral trade agreement with the United States in 2000 and became the 150th member of the WTO in 2007. Vietnam will also be a signatory to the Trans Pacific Partnership Agreement (TPP). Although the TPP suffered a major setback when the US withdrew in 2016, it is likely to be signed by the 11 remaining members – Japan, Mexico, Canada, Australia, New Zealand, Vietnam, Peru, Chile, Malaysia, Singapore and Brunei – and, when fully implemented, it will control approximately 20% of global trade. INDUSTRY PROFILE Vietnam’s rapid growth over the last two decades has been accompanied by a shift in its industrial composition. Agricultural production has been contributing steadily less as a proportion of GDP, decreasing its share from 38% in 1986 to 16% in 2016, while industry and construction grew from 28% to 32% over the same period. The service sector is, however, the largest contributor to national output, accounting for more than 40% of total GDP.50 Vietnam aims to improve the combined contribution of industry and services to 85% of total GDP by 2020.72 Part of the industrial shift being seen in Vietnam is the growth of manufacturing in high-technology goods such as smartphones, computers, electronic and telecommunications equipment and white goods. Telephone and broadcasting equipment now make up the largest category of exports. Despite the decline of agricultural exports as a proportion of all exports, the agriculture sector is still the largest employer in Vietnam. 1 The four FTAs under negotiation include the Regional Comprehensive Economic Partnership (RCEP, ASEAN-Hong Kong, Vietnam-Israel, Vietnam-EFTA) 0 5 10 15 20 25 30 35 40 45 50 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Agriculture Industry Services Figure 11 Value added to Vietnam GDP (%) by economic sector Source: General Statistics Office4
  20. 20. 17 0 5 10 15 20 25 30 35 40 45 50 Telephoneandbroadcasting equipment Textilesandgarments Computer,electronicsand integratedcircuits Footware Machineryandothers Fisheries Furnitureandwoodproducts Marinevessels,motor vehiclesandaccessories Cameraandaccessories Textilematerial Accumulated Exportvalue($USD) 2016 2017 196.6 342.7 1614.3 1701.5 1901.7 2482.3 3346 3800.1 6735.8 8866.6 22315.2 0 5000 10000 15000 20000 25000 Other Information and communication Transportation and storage Government Education and training Accommodation and food services Other services Construction Wholesale and retail trade Manufacturing Agriculture Figure 12 Top exports by sector (accumulated export value US$), 2016-2017 Source: Vietnam Customs73 Figure 13 Employment of labour force (aged 15+) by sector (1000 persons), 2016 Source: General Statistics Office, Vietnam74
  21. 21. 18 Vietnam Today INTERNATIONAL INTEGRATION: INTERNATIONALISING RAPIDLY Vietnam shows strong commitment to international integration and cooperation. In 2017 it hosted the Asia- Pacific Economic Cooperation meetings, and is currently working towards the ASEAN Community Vision 2025, a roadmap for unity and improved well-being in the region.75,76 In addition, Vietnam has formed strategic partnerships with countries including the United Kingdom,77 India,78 Australia,79 Japan,80 Malaysia81 and the Philippines.82 OFFICIAL DEVELOPMENT ASSISTANCE: FROM AID RECIPIENT TO AID PARTNER Over the last three decades, official development assistance (ODA) contributed to Vietnam’s success in lowering poverty and improving infrastructure.83 Once Vietnam reached middle-income country status, however, its status changed from being an aid recipient to an aid partner.83 ODA peaked in 2011 at US$6904 million,83 decreasing to US$2759 million in 2015.83 ODA will continue to decrease in the next five years.83 ODA loans from the World Bank and Asian Development Bank will soon shift to higher interest rates and less favourable terms.83 Borrowing will be more expensive and loans will be held more accountable in terms of investment effectiveness.
  22. 22. 19 ENERGY: DEMAND INCREASING RAPIDLY AND OUTSTRIPPING SUPPLY Access to electricity in Vietnam has vastly improved in recent decades, reaching 98.8% of the population in 2016.84 Vietnam recently transitioned from being an energy exporter to an energy importer as growing demand is not being met by internal supply. Demand will continue to increase as the country’s industrial capacity grows and develops further. The Ministry of Industry and Trade Energy forecasts energy demand will increase by up to 72% by 2025, from 54 to between 89 and 93.3 million tonnes of oil equivalent.85 The National Power Development Master Plan (2011- 2020) is being implemented to help meet this growing demand, including through the generation of more renewable energy.86 More private investment will need to be attracted into the energy sector, as the state’s major energy enterprises currently lack the finance to increase capacity from existing infrastructure.16 In the short term, energy imports are likely to increase as readily accessible oil, gas, and coal resources diminish and the potential of hydropower in Vietnam is fully realised.16 0 200 400 600 800 1000 1200 1400 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Coal Hydroelectric Natural gas Oil Figure 14 Vietnam power consumption (kWh per capita), 1971-2014 Source: World Bank87 Figure 15 Sources of Vietnam electricity production (% of total), 1971-2014 Source: World Bank88-91
  23. 23. 20 Vietnam Today 0 20000 40000 60000 80000 100000 120000 140000 160000 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Rail Road Inland waterways Maritime transport Aviation transport 0 1000000 2000000 3000000 4000000 5000000 6000000 7000000 8000000 9000000 10000000 2000 2002 2004 2006 2008 2010 2012 2014 2016 Figure 16 Volume of freight traffic (million tonne-km) by type of transport, 1995-2016 Source: GSO92 Figure 17 Vietnam container port traffic (TEU: twenty-foot equivalent units), 2000-2016 Source: World Bank93 TRANSPORT INFRASTRUCTURE: INCREASING INTERNATIONAL LINKS, NORTH-SOUTH CONNECTIONS AND URBAN LIVEABILITY Vietnam’s long coastline provides a comparative advantage in trade. The South China Sea is the world’s second-busiest shipping lane, carrying 25% of global shipping traffic.16 To service this sea lane, Vietnam has 14 main and 100 smaller sea ports.16 Maritime trade was boosted in 2011 with the opening of the Tan Cang-Cai Mep International Terminal (TCIT), the first sea port in Vietnam to be able to accommodate and unload larger ships – up to 15,000 TEUs (twenty- foot equivalent units).16 Previously, most cargo shipped to the United States or Europe was first trans-shipped to Singapore, Hong Kong, Malaysia or Taiwan.16 The TCIT has reportedly reduced transit times to the United States and Europe by four days.16 The Transport Strategy 2020 aims to further develop road, railway and aviation infrastructure to better support the country’s growth. Goals for 2020 under this strategy include: • increasing road connections between North and South Vietnam, as well as to surrounding countries; • building 2300-2700 km of highways;16 and • increasing the number of global aviation routes.16 A feasibility study is underway for a high-speed railway between Hanoi and Ho Chi Minh City.16 These two fast-growing cities are also building much-needed underground rail (metro) systems to improve congestion and increase urban efficiency and liveability.
  24. 24. 21
  25. 25. 22 Vietnam Today
  26. 26. 23 2 VIETNAM’S DIGITAL ECONOMY Source: Akamai, Ministry of Information and Communication, VNDIRECT, World Bank Development Indicators IT INDUSTRY REVENUES TELECOMMUNICATIONS INDUSTRY TURNOVER $US 67.6 BILLION $US 6.2 BILLION VIETNAM’S DIGITAL ECONOMY AT A GLANCE 128MILLION MOBILE SUBSCRIBERS BUSINESSES WITH A WEBSITE 49% 305,601 IT GRADUATES BUSINESSES IN THE ICT SECTOR 24,501 9.5MBPS AVERAGE DOWNLOAD SPEEDS EMPLOYED IN IT 780,925 TOTAL IT EXPORTS $US60.8 BILLION 0 200 400 600 800 1000 1200 Technology companies’ share price index, 2012-2018 03/01/2012 11/01/2013 20/01/2014 02/02/2015 17/02/2016 22/02/2017 FIXED BROADBAND CONNECTIONS 9MILLION 2.1 Introduction The digital economy is booming in Vietnam. In 2016, PC Magazine described the country as South-East Asia’s Silicon Valley.24 Emerging sectors and fast-growing sunrise industries in Vietnam include finance technology (fintech), telecommunications, electronics and computer manufacturing, and ICT services. In 2016 Vietnam was home to an estimated 24,501 businesses spanning IT hardware, software and digital content. There are specialist training centres and technology parks for IT programmers and engineers in eight locations, including the major cities of Hanoi, Ho Chi Minh City and DaNang.94,24 The Vietnam government has prioritised IT sector development with the IT Master Plan,6 giving tax incentives and building education infrastructure to support new ICT firms looking to develop or invest.95 The country has a thriving community of software developers and start-ups, developing digital products and services for use within Vietnam as well as undertaking software development offshored and outsourced from advanced economies.96
  27. 27. 24 Vietnam Today 2.2 What is the digital economy? The ‘digital economy’ is notoriously hard to define and measure, with definitions from diverse organisations such as the Organisation for Economic Co-operation and Development (OECD),97 G2098 and Oxford Dictionary99 varying in breadth and scope. This study will adopt a broad definition: All businesses and services that have a business model based primarily on selling or servicing digital goods and services or their supporting equipment and infrastructure. BROADESTDEFINITION BROADERDEFINITION NARROW Definition now includes traditional industries trying to supplement their practices with digital technology Definition now includes industries in which their business models are closely related to digital technology • e-commerce • Industry 4.0 • Smart agriculture • e-government • Platform economy • Sharing economy • Digital content • Telecommunications • Information services • Hardware manufacturing • ICT infrastructure Definition includes ICT sector only Figure 18 Broadest and narrowest definitions of the digital economy The digital economy includes emerging phenomena such as blockchain-based networks, digital platforms and social media, e-businesses (e.g. e-commerce, parts of traditional sectors which use digital-enabled technologies in Industry 4.0 or precision agriculture); businesses involved in the development of software, apps and other content and media creation, and associated training and services; and businesses engaged in creating and manufacturing ICT equipment.
  28. 28. 25 TECHNOLOGY WHAT IT DOES AND HOW IT’S USED Sensors networks and the Internet of Things (IoT)– including drones and automated vehicles Environmental monitoring and remote automation on smart farms, smart cities, autonomous vehicles, drones, remotely operated mines and defence systems. These are often integrated into advanced GPS or geospatial systems. Requires supportive wireless broadband networks and cloud-based services. Can create cyber-physical-biological systems – used to monitoring plant, animal or environmental systems or human health through sensors and wearable technology. Big Data Analytics Customised services and profiling, security assessments, large systems modelling such as environmental and weather systems, markets, transport systems, health and genetic research. Can produce predictive analytics to anticipate behaviour, weather or maintenance for infrastructure for example. AI, machine learning, robotics Systems and robotics that can self-correct and adjust to changing environments, respond to a variety of circumstances or queries, and build on previous data inputs. Applications in natural language processing and voice recognition, robotics including automated vehicles and factories, and health, transport and business services. Blockchain technologies Distributed ledgers and third party trust networks that have been used to create digital ‘crypto’ currencies – such as Bitcoin. They also have widespread applications in food and mining provenance, voting systems, payment networks, social networks, smart contracts, and trading platforms. Virtual and Augmented Reality Visual overlays to enhance performance, create games (such as Pokemon Go), or allow visualisation of new structures. Applications are found in medicine, training and development, entertainment, mining, real estate, tourism and in vehicles, eyewear and ‘smart’ homes. Platform-based economy on cloud-based and mobile-accessed services Although cloud-services and smart phones are no longer ‘new’ or emerging technology, the number of applications moving to cloud-based/mobile accessed services is still increasing, and changing behaviour. Mobile payment services (such as WePay, Samsung Pay, Apple Pay, AlibabaPay) – as well as the OTT services - particularly chat applications and entertainment services – are enabling new platform-based business models.
  29. 29. 26 Vietnam Today Business Business people and investors • Digital investment and adoption • Using new business models to provide personalised and integrated products and services Innovators Universities, innovation centres, indivdiuals • Source of innovation • Talent training and management • Innovation collaboration hub Policy makers Government, unions, associations, NGOs • Promote and regulate the digital economy • Integrated online public services • Data collection • Cyber security and risk management • Supporting infrastructure development Individuals • Customers / end‑users of goods and services • Content owners / creators • Active participants through p2p network • Employees / labour supply Figure 19 Digital economy stakeholders
  30. 30. 27 The Vietnam Government views digital transformation across the broader economy as critical to continued growth and prosperity. Its commitment is seen in the number of policies, master plans and directives published over the last 30 years that have stressed the need to invest in critical infrastructure, build the ICT industry, promote e-commerce, and adopt technology as a means of lifting productivity. Recent policy documents to build the digital economy include: • Decision No. 392/QD-TTg (2015), which sets targets on information technology development through to 2020 with a vision toward 2025; • Decision No. 149/QD-TTg (2016), which sets goals for broadband and telecommunications infrastructure development through to 2020; and • Directive 16/CT-TTg (2017), issued by Prime Minister Nguyen Xuan Phuc to strengthen progress towards Industry 4.0. These directives and decisions address the need to dramatically expand Vietnam’s national information infrastructure, strengthen its human resource base (especially IT professionals), and liberalise its legal and regulatory environment to encourage greater foreign investment and in the ICT sector. For example, in Directive 16 above, Mr Prime Minister Nguyen Xuan Phuc directed the Vietnam Government to further support to technological modernisation of industry specifically through: • Focusing on developing new digital infrastructure and networks • Speeding up reform to encourage businesses to adopt new technology – including implementing e-government across government agencies and reviewing related regulation and services. • Prioritising the development of the Vietnamese ICT industry in government policy and reform, and promoting the take-up of smart technologies across all industries. • Building the innovation eco-system through further funding for scientific and research infrastructure and institutions, creating international relationships, and promoting tech start-ups. • Building technological skills through a focus on STEM education and training from early childhood through to adult education. • Raising awareness at all levels, and in all sectors, of the opportunities and challenges of the 4th Industrial Revolution, ensuring at all areas of Vietnam’s society and industry are prepared for the changes ahead. INCREASING EMPHASIS ON CREATIVITY AND FREEDOM TO PROMOTE ENTREPRENEURIALISM AND INNOVATION The Vietnam Government has also linked increased innovation (including the development of the digital economy) as a driver of economic growth, with increasing creativity and experimentation, and a culture of openness and freedom. In 2016 Vietnam’s Ministry of Planning and the World Bank published Viet Nam 2035: Toward Prosperity, Creativity, Equity and Democracy which stated: In the long term, countries with more open and inclusive political institutions generate greater room for innovation and personal creativity, thus stimulating productivity improvements and higher standards of living. For Vietnam, finding ways of building more open and accountable political institutions will eventually be essential.49 2.3 Policies supporting the digital economy
  31. 31. 28 Vietnam Today National commitee for Information Technology Application Monitor the implementation of national IT plans Ministry of Science and Technology (MOST) Regulating activities related to R&D and innovation; promoting the application, research, development and transfer of key technologies of the 4th Industrial Revolution Regulating and creating development plans in relation to publishing, news media, post, ICT, broadcasting and national information structure Ministry of Finance (MOF) Regulating e-banking and e-finance; formulating policies on tax and finance to promote ICT application Ministry of Industry and Trade (MOIT) Regulating e-commerce and ICT application in industries Ministry of Planning and Investment (MPI) Developing socio- economic strategies and plans to promote ICT and digital adoption Other Ministries and People commitees of provinces Developing action plans and promoting ICT applications in related areas and provinces Ministry of Information and Communication (MIC) Ministry of Education and Training (MOET) and Ministry of Labour, Invalids and Social Affairs (MOLISA) Developing human resources in relation to ICT Office Of Government Figure 20 Main regulators of the digital economy in Vietnam IMPROVING THE REGULATORY FRAMEWORK Multiple agencies are charged with supporting and regulating different aspects of the digital economy in Vietnam, and no single regulation governs all its aspects: the current regulatory framework is a patchwork of commercial regulations and decrees under various ministries. The main agency regulating telecommunications and the ICT industry is the Ministry of Information and Communication. Other agencies involved in supporting the digital economy in Vietnam can be seen in Figure 20. The most important legislation in the area is summarised in Figure 21. A more detailed list of digital regulations can be found in Appendix 2. Modern laws are in place for electronic transactions (2005), information technology (2006), telecommunications (2009), radio frequencies (2009) and network information security (2015). The government has issued a series of decrees and decisions to provide detailed guidance on these laws. The regulatory framework is further enhanced by Vietnam’s international trade and free trade agreements (e.g. AEC, EU-VN) and bilateral agreements with Korea and Japan.
  32. 32. 29 Figure 21 Updates on major regulations relating to the digital economy Law on Telecommunication 2009 Vietnam post, telecommunications and information technology strategy until 2010 and orientations toward 2020 Decree No. 25/2011/NĐ-CP, guiding the im- plementation of the Telecommu- nication law Law on Information Technology 2006 Master plan on Vietnam’s electronics industry up to 2010, with a vision toward 2020 Decree No. 154/2013/ ND-CP, on concentrated information technology park  Law on Radio Frequency 2009 National planning on development of IT security through 2020 Law on Network Information Security 2015 The target program on IT development through 2020, with a vision toward 2025 Decree No. 71/2007/NĐ- CP, detailing the Law on Information Technology Law on E-transaction 2005 The program on development of broadband telecommunications infrastructure through 2020 Directive No.  16/CT-TTg strengthening the ability to access Industry 4.0 Law on High Technology 2008 Scheme to support the national innovative startup ecosystem through 2025 Decree No. 35/2007/ NĐ-CP and No. 27/2007/ NĐ-CP on e-banking and e-finance Decree No. 52/2013/ ND-CP on e-commerce Law on Intellectual Property 2005 Vietnam strategy on ICT development till 2010 and orientations toward 2020 Decree No. 97/2008/ NĐ-CP on internet services and electronic information on the internet Main Laws Main Strategies, Master Plans, Initiatives Decree No. 26/2007/ ND-CP, detailing the E-transaction Law Main Decrees and Decisions
  33. 33. 30 Vietnam Today In early 2018 the mobile network covered all 63 provinces of Vietnam: 43,000 4G stations have been deployed nationwide, covering 95% of the country’s population. Vietnam also has plans to introduce 5G networks by 2020.16 Viettel, VNPT and Mobifone are the dominant companies in the telecommunications market, together holding more than 90% of total market share.103 Despite the improved Internet coverage, a substantial gap remains in access to mobile broadband services between remote rural or mountainous areas and urban areas.104 CONNECTION SPEEDS AND NETWORK SECURITY IMPROVING With average download speeds of 9.5 Mbps, Vietnam is ranked ninth in the Asia Pacific region and 58th in the world in terms of average connection speed, above China, Malaysia, Indonesia and the Philippines.105 Vietnam has a growing number of secure Internet servers. These are critical to e-commerce as they encrypt online transactions, helping customers to trust and engage with online retail. However, at 19 secure Internet servers per 1 million people106 Vietnam still has significantly less secure servers per capita than the world average (215), South Korea (2201) and Thailand (33).106 It is close to the number in China (21), and greater than Indonesia (10).106 2.4 Supportive telecommunications infrastructure 0 200 400 600 800 1000 1200 1400 1600 1800 2000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Figure 22 Number of secure Internet servers in Vietnam Source: World Bank106 EXPANDING DIGITAL INFRASTRUCTURE AND COVERAGE Reliable telecommunications infrastructure is critical to the development and expansion of the digital economy in Vietnam. Existing infrastructure has so far accommodated the voracious demand for bandwidth, but issues are arising with dropouts from undersea cables, local congestion on the network, and mobile phone connectivity and coverage. BACKBONE INFRASTRUCTURE The backbone Internet network in Vietnam is built on fibre optic technology using dense wavelength division multiplexing and synchronous digital hierarchies. One overland and six submarine cables connect Vietnam to the rest of the world. The submarine cables include the Asia America Gateway (AAG) cable, which runs via Hawaii to the USA; the Intra Asia cable; the SMW3 cable (Southeast Asia, Middle East, Western Europe); and TVH cable (Thailand, Vietnam, Hong Kong). Most of the country’s connectivity relies on the AAG cable.16 Unfortunately, it seems to be the least reliable connection, and has already suffered serious outages.100,101 The Vietnam National Internet Exchange (VNIX) was launched in 2003. It transfers domestic Internet traffic between service providers across three regions: the North (Hanoi), the South (Ho Chi Minh City) and the Middle (DaNang). In January 2018, the VNIX bandwidth was 211 Gbps with total network traffic reaching nearly 40 million gigabytes.102 In 2008 Vietnam successfully launched its third satellite service, the Vinasat I satellite, to supplement terrestrial Internet connections and reach areas that are too expensive to connect via overland cables. However, while Vinasat I has high capacity and can transmit Internet services to all regions of the country, satellite signals tend to be weaker and less reliable in a range of weather conditions. MOBILE PHONE COVERAGE AND SPECTRUM USE Terrestrial 3G mobile wireless services were launched in Vietnam in 2009 and 4G services were licensed in early 2016. In October 2016 four telecommunications companies were granted licences to install 4G LTE networks, with a view to supporting Internet of Things applications and Smart City infrastructure. These networks are currently being rolled out.103
  34. 34. 31 SPECTRUM USE AND ALLOCATION Spectrum allocated for use by the mobile phone and broadband sector in Vietnam sits in the 630 MHz range. Economic returns are higher than for spectrum allocated for other purposes, such as radio and television. Some US$5021 million was invested in the mobile network spectrum in 2015. This is expected to reach US$8211 million in 2020.107 The efficiency of the mobile spectrum has increased over time.107 There is increasing demand for more spectrum to be allocated for mobile broadband use.107 Mobile subscriptions have grown by 2 million per year since 2012, and millions of new services are predicted to come online over the next decade.10 It is highly likely that most people connected to the Internet in the future in Vietnam will be connected through mobile devices alone. The expanding Internet of Things will create further traffic and congestion on the existing spectrum allocated for mobile use. It is estimated that around 75% of connections in 2020 will be to machine-to-machine devices via short-range wireless services.108 3016 30 58 1369 5021 82 77 1660 396 300 618 300 356 680 0 100 200 300 400 500 600 700 800 0 1000 2000 3000 4000 5000 6000 Mobile Satellite Radio&TV Civil aviation Economicbenefit($USmil) Spectrum(MHz) 2013 2015 Spectrum 2013 Spectrum 2015 Figure 23 Economic benefit from spectrum based sectors, 2013-2015 Source: Vietnam National University and Economic Research Institute of Post and Telecommunication107
  35. 35. 32 Vietnam Today Vietnam has the highest number of registered domains in ASEAN: there are around 422,000 active ‘.vn’ domain names, from a total of nearly 1 million domains registered in ASEAN nations. Vietnam also has around 16 million allocated IPv4 addresses.102 WIRELESS RATHER THAN FIXED BROADBAND Vietnam’s Internet use is dominated by mobile phones. From 2005 to 2016, the number of mobile subscriptions increased nine-fold. By 2017, Vietnam had 136 million mobile subscriptions. This is 144% of the total population, with many Vietnamese have more than one mobile subscription.112 More than half the mobile phones used in Vietnam are smartphones able to access the Internet. 0 5 10 15 20 25 30 35 40 45 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Percentage Indonesia India Pakistan Vietnam 0.00 20,000,000.00 40,000,000.00 60,000,000.00 80,000,000.00 100,000,000.00 120,000,000.00 140,000,000.00 160,000,000.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Fixed broadband subscriptions Fixed telephone subscriptions Mobile cellular subscriptions Figure 24 Proportion of population using the Internet by country Source: World Bank68 Figure 25 Broadband take-up in Vietnam – number of connections, 2006-2016 Figure: World Bank68 2.5 Digital adoption VIETNAM’S APPETITE FOR DIGITAL IS INCREASING The adoption of high-speed Internet services, smart devices and mobile phones in Vietnam has been comparatively high since 2003, outstripping adoption in countries such as Pakistan, India and Indonesia. In 2017, more than half of the country had Internet access, compared to around 15% a decade ago.109 Rural areas still lag behind metropolitan areas, although the provision of satellite and wireless services is now boosting take-up rates in even the most remote provinces. The adoption of broadband Internet services is also increasing in the business sector. The share of manufacturing and service firms using the Internet for business activities rose to 71% in 2007 and 86% in 2011.110 Around 500,000 Vietnamese business accounts had been created on Alibaba.com by 2016. Over the last three years, the number of accounts increased by an average of 100,000 per year.111
  36. 36. 33 Information and communications technology (ICT) is one of the fastest-growing industry sectors in Vietnam. In 2016 total revenues from the ICT industry were US$67.7 billion, nearly ten times the figure in 2010 (US$7.6 billion).113 The hardware industry is the largest subsector of Vietnam’s ICT industry, contributing around 85% of total revenue.112 ICT equipment accounted for around 25% of total exports from Vietnam in 2016, up from less than 10% as recently as five years ago.67 It is now the country’s largest export sector, with telephone and broadcasting equipment particularly important. Leading Vietnam-located manufacturers such as Samsung, Intel, Dell and LG are expanding their businesses and increasing investments in the country.114,115 Vietnam assembles electrical and electronic products, and increasingly exports sophisticated computing devices: half of Samsung’s high-end S8 and S8 Plus phones and more than 80% of Intel’s personal computer central processing units are produced in Vietnam.116 Over the last decade, Vietnam has surpassed most regional neighbours including India and Thailand in terms of high-tech exports as a percentage of total manufactured exports. Local companies in the ICT sector are experiencing remarkable growth, with share prices increasing more than three-fold since 2012.117 Larger companies include VC Corporation, Viettel and FPT. The software industry is also growing steadily and starting to attract global attention as a significant regional hub.24 Local businesses account for the majority of the market, supplying low-cost software products. In 2016, a total of 7,433 businesses in Vietnam created digital software for sectors such as finance, telecoms, smart agriculture and government. IT outsourcing services generated around US$3 billion.118 Vietnam has overtaken India to be Japan’s second-largest software outsourcing destination, behind only China.119 0 5 10 15 20 25 30 35 40 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (%ofmanufacturedexports) Vietnam Thailand Indonesia India Figure 26 High-technology exports across economies (% of manufactured exports), 1997-2016 Source: Vietnam Customs67 2.6 ICT – the booming base of Vietnam’s digital economy
  37. 37. 34 Vietnam Today TOTAL REVENUES VIETNAM ICT INDUSTRY 2015 (US$ MILLIONS) 2016 (ESTIMATED, US$ MILLIONS) GROWTH RATE (ESTIMATED) Revenue of hardware: electronic industry 53,023 58,838 10.97% Revenue of software industry 2,602 3,038 16.80% Revenue of digital content industry 638 739 15.83% Revenue of IT services (not including trade and distribution) 4,453 5,078 14.04% Total revenue of IT industry 60,715 67,693 11.49% Source: Ministry of Information and Communication103 NUMBER OF ENTERPRISES VIETNAM ICT INDUSTRY 2015 2016 (ESTIMATED) GROWTH RATE (ESTIMATED) Hardware, electronic industry enterprise 2,980 3,404 12.46% Software industry enterprise 6,143 7,433 17.36% Digital content industry enterprise 2,339 2,700 13.37% IT services enterprise (not including trade and distribution 10,196 10,965 7.01% Total number businesses 21,658 24,502 11.61% Source: Ministry of Information and Communication103 MOVING TOWARDS DIGITAL ECONOMY MATURITY WITH E-COMMERCE E-commerce is one of the fastest-growing segments of Vietnam’s digital economy. According to the Vietnam E-commerce and Information Technology Agency (VECITA), the country’s e-commerce market is growing by 35% per year – 2.5 times faster, for example, than Japan.120 Vietnam’s online retail revenues reached US$5 billion in 2016, more than double those of 2013 (US$2.2 billion). VECITA expects the number of online shoppers will increase by 52% by 2020.7 The Internet has become important in information exchange between enterprises, especially firms exporting or importing. Almost half of Vietnam’s businesses own a website (49%) and a third of businesses (32%) have set up relationships with foreign partners through online channels.121 2.97 4.07 5 35 37 23 0 5 10 15 20 25 30 35 40 0 1 2 3 4 5 6 2014 2015 2016 (%) $USbil Revenue Growth   2014 2015 2016 % of Internet users involved in e-commerce 58% 62% 65% Estimated e-commerce expenditure per person (US$) 145 160 170 Figure 27 Vietnam B2C e-commerce landscape Source: Vietnam E-commerce Association122
  38. 38. 35 E-commerce within Vietnam and around the world is evolving with the rapid development of mobile payment applications – such as WePay, ApplePay, SamsungPay – and the emergence of global cryptocurrencies that can use digital wallets to allow people to both transfer funds peer-to-peer across the Internet, as well as pay for goods and services locally. Payments in global crypto-currencies are often able to avoid transactional costs associated with currency exchanges, bank fees and credit card payments. EMERGING AND EXPANDING SHARING AND PLATFORM ECONOMY The sharing economy has been facilitated by cloud- computing platforms, the high rate of adoption of smartphones, and Vietnamese consumer preferences for low personal asset ownership. For example, in the last five years ride-sharing platforms and apps such as Uber and Grab have created competition for traditional taxi businesses. Vietnam was the first country in Asia to attract Uber, and, excluding China, was Uber’s fastest-growing market globally in 2015.123 More people use Grab in Vietnam than in any other country. Traditional taxi services in Vietnam are increasingly developing their own platforms and mobile apps to compete with the newer market entrants. Peer-to-peer lending also on the rise in Vietnam, with platforms such as Timma, Vaymuon and Mofin offering loans to individuals and Lendbiz offering business loans. Through the Lendbiz service, businesses can apply for up to 1 billion VND (US$44,000) loans without collateral, and these can be approved within 24 hours. The Lendbiz platform is attractive to investors: barriers are low, with only 500,000 VND (US$22) needed to join, and there is the potential to achieve high returns with yearly interest rates up to 20%.124 The platform economy benefits a range of groups, including companies, investors, employees, and consumers, who now have more efficient access to services. Their new business models offer new income streams and employment opportunities, either full-time or part-time through freelance or contracting. DIGITAL CONTENT ON A ROLL Social media While television and newspaper maintain their footholds, growing mobile device ownership is fuelling demand across the country for digital content and news. There are 240 social networking sites and 63 integrated digital news outlets in Vietnam.112 Facebook is by far the most popular social network, with a third of the population owning Facebook accounts.113 The Vietnam Government is promoting the development of local social media networks through initiatives such as The Digital Vietnamese Knowledge Platform. This open platform encourages users to develop apps and other software (including social networks and media) using government data and infrastructure.125,126 Online ads Vietnam’s online ad industry is growing rapidly, reaching US$390 million in revenues in 2016. This is expected to triple by 2020.122 In 2014, social networks overtook search engines to become the most-used online advertising method for enterprises in Vietnam.122 Apart from enterprises, most ad patrons are household businesses and individuals selling goods and services online. These groups have contributed the most to the growth of advertising on social networks. Over-the-top services Over-the-top (OTT) services such as Zalo, Skype and Viber are replacing traditional voice and SMS services. Mobile messaging via apps surpassed traditional messaging via SMS in Vietnam in 2012.16 Major operators including Viettel and VNPT are now shifting to offer their own OTT services, such as Viettel Mocha or Viettalk, to compete. Games Vietnam has become one of the biggest markets for online games in South-East Asia. In 2017, Vietnam ranked 28th out of 100 countries in total game revenue (US$367 million), exceeding the Philippines and Singapore.127 VNG, Vietnam’s largest provider of online games, is valued at US$1 billion by market research firms.128 Most of the growth comes from the mobile games market: game apps in smartphones increased by 37% in 2016,129 and as much as 60% of smartphone app revenue in Vietnam comes from games. Flappy Bird, by Vietnam’s Nguyen Ha Dong, was the most- downloaded free game in the iOS App store in 2014.130
  39. 39. 36 Vietnam Today DELIVERING E-GOVERNMENT SERVICES E-government services have diffused rapidly in Vietnam. As in other developing countries, government agencies and service providers have adopted digital services before many businesses.131 This is not surprising, as most firms in Vietnam are small and many operate informally. In 2015, Vietnam issued Resolution 36a/ND-CP to: Promote the development of e-government, improve the quality and effectiveness of state agencies to better serve people and enterprises, improve Viet Nam’s position on e-government under the UN ratings, and ensure openness and transparency in state agencies. Between 2014 and 2016, Vietnam rose 10 places to rank 89th out of 193 countries and territories on the United Nations’ e-government development index (EGDI).21 It was among ten countries which made the leap from middle- EGDI to high-EGDI values.21 The main focus of Vietnam’s e-government initiatives is on developing governmental administrative systems in finance, customs and tax management. These efforts seem to be paying off. In a survey by the Ministry of Industry and Trade in 2016, 74% of firms reported using the online public service. Online tax management was the most frequently used public service (88%), followed by online business registration (41%) and customs declarations. The Government has also focussed on developing and supporting underlying platforms and infrastructure including for IoT and Smart Cities development, Open Data and Right to Information portals, and inter-agency communication.132 0 500 1000 1500 2000 2500 3000 3500 4000 4500 2012 2013 2014 2015 2016 kbps Government agencies Commercial banks Major economic groups 0% 10% 20% 30% 40% 50% 60% 70% 80% 2012 2013 2014 2015 2016 Figure 28 Internet broadband bandwidth per employee across agencies in Vietnam Source: Ministry of Information and Communication and Vietnam Association for Information Processing94 Figure 29 Business usage of online public services in Vietnam (%) Source: Vietnam E-commerce Association122
  40. 40. 37 SUNRISE INDUSTRIES Fintech Digital technologies have given rise to new business models and emerging ‘sunrise’ industries. Financial technology (fintech) services and products have been among the fastest growing. In 2017, Vietnam had 48 fintech firms providing services from payment to remittances and cryptocurrency.133 Though payments still accounts for a large proportion of fintech startups (48%), emerging segments such as insurtech (insurance), wealthtech (wealth) and regtech (regulation) are attracting interest from both local and international investors.  Telehealth Government health agencies are examining how e-health can provide services to an aging, diverse and geographically dispersed population. For example, the Department of Health in Quang Ninh Province is deploying a telehealth network system to provide immediate healthcare services to rural and remote communities in mountainous regions or islands, which can be a day away from city centres by car. Vu Xuan Dien, Director of Quang Ninh Department of Health, states: The telehealth network has completely changed our levels of service to communities in the province and reduced the workload pressures on our clinical staff.134 e-payment Crowdfunding Blockchain Personal finance management Remittance Loan POS management Data management Information compare Figure 30 Fintech segments in Vietnam Source: State Bank of Vietnam133
  41. 41. 38 Vietnam Today Figure 32 Main technologies in Industry 4.0 Internet of Things and cyber-physical- biological systems Industry 4.0 Artificial Intelligence System integration and augmented reality Additive manufacturing Big data and the cloud Robotics Figure 31 Stages of industrial revolution First Industrial Revolution • Machine production • Steam and water power Second Industrial Revolution • Assembly lines • Mass production • Electrical power Digital Revolution • Digital computer machinery • Internet • Automation Industry 4.0 • Internet of Things • Big data analytics • Artificial Intelligence • Cyber-physical- biological systems 2.7 Industry 4.0 – the next wave There is a long history of industries, particularly manufacturing, being revolutionised by waves of new technology. In the early 1800s, the First Industrial Revolution started the transition from hand production methods to machine production powered by steam and water engines. The Second Industrial Revolution saw the introduction of electricity, assembly lines and mass production. The third wave, or the Digital Revolution, started to harness the power of computers and automation in manufacturing. Industry 4.0 is the next, and possibly most dramatic, wave of digital and online transformation. It will change the structure and dynamics of many industries through further automation, cyber-biological-physical systems, big data analytics, sensor networks, artificial intelligence and the Internet of Things. MANUFACTURING 4.0 There are many opportunities for manufacturing to utilize Industry 4.0 technologies. The 4.0 factory will have machines-to-machine communication, use artificial intelligence for machines to make automatically make routine production decisions, and provide human operators with rich data to inform more complex decision-making. Analytics can be used to forecast consumer demand, predict machine failures, show indicators of production quality in real-time, and help optimise the entire production process.135 Operations management within factories will be seamlessly linked to market intelligence and analytics, with greater ability for consumers to order customised low- volume products directly from the factory. Supply chains and distribution can also be assessed, communicated with, and adjusted based on varying market conditions and consumer demand. This will result in greater responsiveness, efficiency and agility in getting products to market, and reducing production waste.136,137
  42. 42. 39 AGRICULTURE 4.0 The agriculture sector is also set to see radical change through the implementation of Agriculture 4.0, also called ‘smart agriculture’ or ‘precision agriculture’. Agriculture 4.0 optimises crop inputs based on actual crop needs with the aid of technologies such as GPS, remote sensing networks and the Internet to create cyber- physical-biological systems.138 These systems can provide real-time intelligence on soil conditions, plant and animal needs, weather conditions, crop yield and market demand. All of this information can dramatically improve yields, nutritional value, animal welfare, and systems waste.139 Agriculture 4.0 can also harness blockchain distribution networks. Blockchain can provide paddock-to-plate visibility of food available in shops. This has the potential increase consumer trust in Vietnamese produce, and improve value-added components of food – such as nutritional value, geographic sourcing, animal welfare, and ‘organic’ attributes.140,141 Agriculture 4.0 has begun to be implemented in Vietnam’s rural areas, especially with high value-added products such as aquaculture, flowers and fruits. For example, in 2016 a wireless sensor network was set up in a Vietnamese fish farm in Dong Thap Province, next to the Mekong River, to control water quality and prevent fish diseases. If implemented more widely, real-time monitoring on fish farms could help cut production losses by 40-50%, equating to a difference in turnover for each farm of at least US$12,000 every six months.142 Similar projects are being conducted across the country, with support from government policy and lower loan interest rates. IMPLEMENTING INDUSTRY 4.0. Introducing Industry 4.0 across large sectors such as manufacturing and agriculture is not without its challenges. For instance, legacy systems in both agriculture and manufacturing are expensive and complex, and introducing Industry 4.0 technologies often requires capital-intensive investments across the entire business operation. Most equipment currently used in both the agriculture and manufacturing sectors is analogue and managers and staff have not been trained in implementing or using more digitally connected systems. In many rural areas, there is not the telecommunications infrastructure to support Internet of Things and sensor- based networks – such as low-powered wide area networks – and there is low trust in the security of networks. It is likely that the take-up of Industry 4.0 technologies will take a number of years across both sectors, but will be driven by large productivity and profits gains.139 DISRUPTING JOBS Overall industry 4.0 has the potential to markedly lift labour productivity across sectors. However, because this can be done through high levels of labour replacement, there is also the risk of significant job losses and higher unemployment, particularly at a local level. The International Labour Organization reports that more than two-thirds of South-East Asia’s 9.2 million textile and footwear jobs (including 86% of those in Vietnam) are at risk from automation through smart technologies.11 There is also growing anxiety in the Vietnamese population about the impacts of Industry 4.0. A recent survey among SMEs in Hanoi found 55% of the SMEs interested in Industry 4.0 believe that Industry 4.0 will have a profound impact on Vietnam’s economy, mostly through job losses to due to automation.143
  43. 43. 40 Vietnam Today
  44. 44. 41 Vietnam has transformed rapidly over the last three decades, and the next 20 years are likely to see it transform at an even greater pace. This will present a number of opportunities and challenges. CHALLENGES FOR VIETNAM: • Increasing labour productivity and moving from a middle-income to high-income country: Only a little over 10% of countries that had achieved middle-income status by 1960, according the World Bank, went on to achieve high-income status by 2008.144 Vietnam faces a significant challenge over the next two decades to avoid being caught in the ‘middle-income trap’. One risk is that investment and growth may taper off due to reduced competitiveness caused by increasing labour costs and too little investment in infrastructure and labour-saving technology. Alongside a failure to invest in productive technology, infrastructure, skills and enterprise, reasons why other countries have remained trapped at middle-income level include political instability and inefficient public administration, regulation and expenditure. Over the last three decades the economy of Vietnam has expanded rapidly on the increased availability of labour inputs, but increases in labour productivity through the implementation of technology have been limited.5 For Vietnam to escape the middle-income trap, labour productivity must increase sharply over the next decade. • Digital disruption: While labour productivity must rise through technological innovation, rapid job losses due to job replacement are a significant risk for the economy of Vietnam. The International Labour Organization reports that around 70% of jobs in Vietnam are at high risk of being replaced through automation over the next two decades.11 Vietnam was identified as the country most at risk of digital disruption in the examined five ASEAN nations – Philippines, Thailand, Indonesia and Cambodia.11 3 CHALLENGES AND OPPORTUNITIES Vietnam Vietnam 70% (highest risk) 70% Philippines 49% Indonesia 56% Cambodia 57% Thailand 44% Cambodia 57% Indonesia 56% Philippines 49% Thailand 44% (lowest risk) Figure 33 Percentage of wage workers at high risk of automation in ASEAN-5 Source: International Labour Organization11
  45. 45. 42 Vietnam Today This is due to high levels of employment in the manufacturing sector in Vietnam, particularly in the clothing, agricultural and retail sectors. The occupations identified to be most at risk include shop sales assistants, garden labourers and sewing machine operators. Women, workers with less education and those in low-paying jobs are more likely to be impacted by automation than other parts of the workforce.11 Large and discrete populations of the Vietnam workforce will need to be reskilled and new industries will need to develop to avoid rises in unemployment. • Urbanisation and increased internal population migration: As noted above, Vietnam will continue to urbanise quickly over the coming two decades. It will be a challenge to manage population growth and infrastructure provision in rapidly growing urban areas, and the economic and social consequences of declining populations, particularly youth populations, in regional areas. • Climate change and increases in severe weather events: The International Monetary Fund has placed Vietnam among the world’s top five countries most likely to be affected by climate change and extreme weather events.13 Heatwaves, cold snaps, severe storms, typhoons, flooding and storm surges are increasing in frequency along its long sea coast and in the low-lying rich deltas of the Mekong and Red Rivers.13 Vietnam’s two largest cities, Hanoi and Ho Chi Minh City, are both on low-lying coastal deltas and prone to flooding and storm events. Increased salinity in soils and water due to rising sea levels is already impacting food production in the river deltas, which supply most of Vietnam’s domestic fresh produce as well as significantly contributing to the country’s exports.13 • Debt levels: Public and private debt in Vietnam has been growing over the last five years. Public sector debt levels were 61.3% of GDP at the end of 2017, up from 45.8% in 2011.145 Investing in infrastructure while managing debt will remain a challenge for Vietnam as the economy expands and the population urbanises. Private sector debt is also growing rapidly, with total debt (public and private) reaching 124% of GDP – exceeding the ASEAN-5 countries (Malaysia, The Philipines, Singapore, Indonesia and Thailand), other middle income countries and other countries at comparable stages of development.13 While inflation at the end of 2017 was low at 3.53%,50 in the past sharp increases in debt in Vietnam have caused financial instability followed by surges in inflation to over 20%.13 • Maintaining foreign direct investment: FDI is an important driver of growth in Vietnam, accounting for 71.6% of total exports.14 Over the last 30 years, the government has introduced many regulations to bolster the climate for investment in Vietnam – for example, the 2015 Law on Investment and Law on Enterprise, which increased investment incentives and permitted foreign investment into a wider range of business sectors. While such changes have increased FDI,15 analysts warn that more reform is needed to maintain growth in the longer term.16 The Master Plan on Economic Restructuring in 2013-2020 aims to address this issue by improving the country’s business environment and providing more support to private enterprises.5 It focuses on the development of the digital economy and prioritises attracting more FDI into areas such as infrastructure and high tech manufacturing.146 • Increased inequality: As noted in the introduction of this report, despite impressive reductions in poverty, there are growing concerns about inequality. With a small group of citizens now controlling large business interests that affect the lives of many Vietnamese people, increasing inequality has the potential to cause political and civil instability that could impact on FDI and the country’s growth trajectory. • Skills shortages: Vietnam faces considerable skills shortages. Unskilled workers still made up a substantial portion (38%) of the labour force in 2016,38 despite large demand for skilled labour.47 Across nine sectors, between 50% and 88% of employers reported problems with recruiting due to a lack of candidate skills.47 Among 633 Japan-affiliated firms in Vietnam, 42.5% reported the quality of employees as a management problem.147 Demand for IT workers is increasing by 47% per year, and to meet this demand Vietnam will need an estimated one million more workers in the sector by 2020. 19 The lack of highly skilled IT professionals is leading to vulnerabilities, particularly in cyber security: Vietnam was ranked 101 out of 193 countries, below Myanmar, Laos and Cambodia, in a global cyber security index in 2017.148 The first half of 2016 saw more than four times as many cyber security attacks and incidents as all of 2015.114
  46. 46. 43 OPPORTUNITIES FOR VIETNAM INCLUDE: • Location and geography: The centre of the global economy is moving from west to east and by 2050 will be located between China and India, which will by then be the world’s largest economies.20 Vietnam is a sizeable market in its own right, but is also well situated to operate across economies and cultures in the heart of Asia’s fast-growing nations. It has overland trade routes between China and neighbouring countries Laos and Cambodia. Crucial maritime trade routes run along Vietnam’s long coast through the South China Sea and Hanoi is on one of China’s Belt and Road maritime trade routes, which are being developed to facilitate the transport of goods and services from China to Europe and the rest of the world. Vietnam’s long coastline and bio-diverse regions also provide opportunities for further building the fast- growing tourism sector. The country is home to 10% of the world’s fauna, and 40% of the country’s flora exist only in Vietnam.149 According to the Ministry of Natural Resources and Environment, Vietnam is ranked the world’s 16th-richest country in terms of bio-diversity.150,151 This may contribute to Vietnam’s economy not only through eco-tourism but also through biodiscovery. • Young and educated population: The median age in Vietnam is only 30.4 years,21 compared to 42.6 years in the European Union and 37.4 years in China.152 This means a relatively high proportion of the population in Vietnam (70%) is of working age.22 The workforce is well-educated. Universal primary education in Vietnam has been compulsory since 1991,153 and adult literacy levels are high, at around 95%.23 Youth literacy is even higher, at 98%.23 Vietnam’s students score highly on international rankings, comparing well with many OECD countries.154 Although Vietnam has a skills shortage in a number of areas, there is a concerted government effort to invest in education, especially technical education.155 Youth and education can be considered assets in economic and digital transformation. • A growing and entrepreneurial ICT industry: As described above, Vietnam has fast-growing sunrise industries such as fintech, and the government has prioritised IT sector development with the IT Master Plan.6 Many Vietnamese software firms are also attracting software development outsourced and offshored from other countries.96 • Closer to global innovation and venture capital: Along with the shift in the centre of global economic gravity to the east, the world’s technological centre is also moving towards the Asia Pacific region. Vietnam is growing its innovation capability, performing at least 10% above countries with a similar GDP level.156 The 2017 Global Innovation Index (GII) ranked Vietnam 47th out of 127 countries, up 12 places since 2016, and the top lower-middle income country on the list.156 Increasing numbers of patents are being filed by neighbouring countries, particularly China,25 which now also ranks second only to the United States in providing global venture capital.26 This may be advantageous for emerging technology start-ups in the region seeking access to finance for innovation. • A growing Asian middle class: The global middle class is expanding rapidly: by around 2020 it is projected to make up over 50% of the world’s population, compared to about 30% in 2010.27 Future middle-class expansion is projected to be heavily concentrated in Asia (88% of the next billion new entrants), especially in China and India.27 Vietnam will see a huge increase in the middle class: roughly 10% of the Vietnamese population were part of the global middle class in 2015,41 and by 2035 this is projected to increase to over half.41 As the Asian middle class grows, so will their spending. Middle-class spending in the Asia Pacific region is predicted to nearly triple between 2015 and 2030.27 • Booming tourism in South-East Asia: Related to opportunities associated with location, geography and the growing Asian middle class, is the boom in tourism in Vietnam. Tourism is one of Vietnam’s growing service sectors – contributing 13.9% to GDP in 2015 but predicted to grow to over 15.2% by 2026.28 In 2015 the tourism sector employed over 6 million people directly and indirectly (close to 10% of the total workforce in Vietnam), and saw over six million international visitors. This number is predicted to grow to over 11 million in 2026. Most international tourists visiting Vietnam came from China, South Korea, Russia and the US. The growth of tourism is a region-wide phenomenon, with Thailand, Malaysia, Indonesia and Singapore all experiencing increased visitor numbers since 2009.157
  47. 47. 44 Vietnam Today • Leapfrogging technology: Vietnam has seen rapid development in its mobile communication technologies, with 4G networks now covering over 95% of households.16 Vietnam aims to introduce 5G by 2020.16 In many areas 5G wireless connectivity will negate the need to install costly fibre-to-the-premises infrastructure. It will also enable a new generation of Internet of Things (IoT) technologies. The most promising use cases for 5G in Vietnam are connected healthcare, smart cites, autonomous vehicles, industrial IoT and fixed wireless connections.29 These applications can support advanced manufacturing in Industry 4.0 and help to make healthcare more efficient as the population ages. Widespread wireless coverage, along with high consumer mobile adoption, can help prevent digital divides and ensure the country’s digital development can be harnessed by all. NEXT STEPS • To investigate how Vietnam should navigate the challenges and opportunities it faces over the next 20 years, the next step in this study will be to further investigate the impacts of Industry 4.0 on the manufacturing and agriculture sectors, and to create and describe plausible scenarios for Vietnam’s Future Digital Economy in 2038. • Selected members of industry, government and the Vietnamese community will be interviewed and further information will be gathered on the trends described above, and any other trends which can be uncovered. • Plausible future scenarios will then be created by developing axes describing the trends that create the greatest impact and the greatest uncertainty for Vietnam. • When complete, these scenarios will provide a vision for leaders of government, industry and community so Vietnam can plan to accommodate future uncertainties, creating resilience and prosperity over the coming decades.
  48. 48. 45
  49. 49. 46 Vietnam Today
  50. 50. 47 APPENDIX 1 COMPANIES OPERATING IN THE DIGITAL ECONOMY IN VIETNAM Digital economy ecosystem TELECOMMS ICT GOODS AND SERVICES E-COMMERCE INDUSTRY 4.0 E-GOVERNMENT DIGITAL CONTENT EMERGING INDUSTRIES SHARING ECONOMY AGRICULTURE MANUFACTURING

×